I don’t doubt that many AMA members have good intentions (others’ motives are, perhaps, not so pure). However, I think the move is ill-advised.
Investment implications: the law of unintended consequences
When there’s a major policy change — either governmental or influential industry group — there are usually investment implications. It’s possible this classification will result in additional obesity-related treatments being covered by some medical plans. I think it’s too early to predict which medical industry (I include weight management programs in this broad classification) companies could benefit. So, let’s table that angle. However, I do think there’s an unlikely group that will get an added boost from the AMA decision.
This is a nuanced opinion, so consider carefully. Unfortunately, I think the AMA’s decision will turn out to be a classic example of “the law of unintended consequences,” in that it will likely increase the obesity rate. The best that can be hoped for, in my opinion, is that it has no effect.
Carte blanche labeling obesity as a disease can easily cause a sense of helplessness (“It’s a disease, so I need a ‘medical cure’ — procedure and/or pill”). It won’t be viewed by some (those who are and aren’t overweight) as a lifestyle (diet, exercise) issue, but as a health one. So, with that link or correlation weakened, the thought for some will be: why eat better? It’s futile.
Sweets, snacks & processed foods are here to stay
For this reason I think the AMA decision is bullish — or at least not bearish — for the plethora of companies that produce and/or serve “non-whole foods.”
There are countless companies that fall into my very broad category, but I’ll focus on “processed and packaged foods” category. Here are a few that look attractive:
| Company | Fwd P/E | PEG | EPS growth this yr (%) | EPS growth next yr (%) | EPS growth next 5 yrs (%) | ROE (%) | LT D/E | Profit Margin (%) |
|---|---|---|---|---|---|---|---|---|
| Snyder S Lance Inc (NASDAQ:LNCE) | 19.8 | 1.7 | 51.8 | 16.9 | 18.2 | 7.4 | 0.6 | 3.9 |
| The J.M. Smucker Company (NYSE:SJM) | 16.4 | 2.7 | 23,2 | 8.6 | 7.8 | 10.4 | 0.4 | 9.2 |
| B&G Foods, Inc. (NYSE:BGS) | 19.1 | 2.0 | 15.4 | 14.5 | 14.0 | 20.5 | 1.6 | 9.6 |
| Flowers Foods, Inc. (NYSE:FLO) | 20.3 | 1.7 | 10.0 | 12.2 | 12.7 | 24.3 | 0.6 | 6.4 |
| Advantage | — | Snyder’s; Flowers | Snyder’s | Snyder’s | Snyder’s | Flowers | Smucker | Smucker; B&G |
Source: Finviz; LT D/E is long-term debt/equity. Data to June 28.
I want to be clear — I’m NOT suggesting these companies are comparable on any healthful or non-healthful food scale. It’s a mixed group. Additionally, most have mixed offerings themselves.
Snyder’s-Lance
Snyder S Lance Inc (NASDAQ:LNCE) produces and sells snack foods primarily in the U.S. Its products include pretzels, potato chips, tortilla chips, nuts, sandwich crackers, pretzel crackers, cookies, etc. Its major brands include Snyder S Lance Inc (NASDAQ:LNCE) of Hanover, Lance, Cape Cod, Archway, and Stella D’oro. The company was formed when Lance merged with Snyder’s in 2010.
What’s not to like about Snyder S Lance Inc (NASDAQ:LNCE) EPS number and projected numbers? I’d like to see its ROE get larger, and its profit margin a bit fatter. However, all things considered, it looks moderately attractive, making it at least a good watch list candidate.
J.M. Smucker
This is an old family-owned business. It produces and sells coffee, fruit spreads, peanut butter, oils, baking mixes, beverages, frozen sandwiches, dessert toppings, etc. Its brands include The J.M. Smucker Company (NYSE:SJM)’s, Jif, Folgers, Millstone, Crisco, Pillsbury, Hungry Jack, and many others.
Its focus on coffee, peanut butter, and jams and jellies has been a winning strategy — and should continue to be one. It has “high quality” (consistent) earnings, a nice profit margin (9.2%), and pays a 2.1% dividend. Not surprisingly, investors will pay up for these qualities; the company’s PEG of 2.7 is the highest among the group.
